Stocks End the Week on a Positive Note

Consumers weren't the only shoppers prowling the market for post-holiday bargains on Friday; investors were prowling for bargains of their own. Remarkably, they found them in both New and Old Economy issues. All three major market barometers climbed substantially higher in Friday's abbreviated session after the Florida Supreme Court refused Al Gore's request to order Miami-Dade County officials to resume tallying ballots.

I know you folks who are left of center don't like to hear this, but the market prefers Bush to Gore because of Gore's proclivity to micromanage the economy and pursue government lawsuits against U.S. corporations. In fact, positive news for the Gore camp has stymied every rally the market has attempted since the election.

Regardless of what put investors in a buying mood, we'll take the gains anyway, particularly in the beleaguered Nasdaq Composite Index (COMPX). The COMPX has bled heavily in recent sessions -- closing down for five straight trading days to its lowest close in 13 months on Wednesday. Moreover, the tech- heavy index has fallen as much as 16 percent since the election.

But that all changed on Friday when the COMPX gapped up nearly 50 points at the opened and continued to climb through the session to finish up 148.79 points, or 5.40 percent, to 2,904.13. The COMPX was buoyed by its large-cap components, many of which have turned into value plays over the past few months. Intel (INTC), the No. 1 chipmaker, rose $2.75 to $43.94; Microsoft (MSFT), the No. 1 software maker, rose $1.69 to $69.91; and Cisco Systems (CSCO), the No. 1 Internet routing gear maker, added $2.00 to $52.56.

There were a few other notable (notable for the routing they've taken over the past two months) large-cap COMPX stocks moving higher on Friday, too. Oracle (ORCL) gained $1.81 to $24.13 and was the market's most active stock, WorldCom (WCOM) rose $1.31 to $15.81, and Juniper Networks (JNPR) added $12.13 to $131.75.

Meanwhile, the Old Economy Dow Jones Industrial Average (INDU) caught an updraft from two of its own high-tech components. International Business Machines (IBM) climbed $1.44 to $99.94 and Hewlett-Packard added $1.94 to $35.56. Buying in both issues was bolstered after research firm Dataquest reported European shipments of large computers that manage corporate networks and Websites rebounded in the third quarter. The INDU closed Friday's session up 70.91 points, or 0.68 percent, to 10,470.23.

As for the broader market, it also closed the holiday- shortened week on a high note. The S&P 500 Index (SPX) added 19.41 points, or 1.47 percent, to 1,341.77. Despite the gains, the SPX has a long way to go if it's going to close the year at 1,575, which was stock siren Abbey Joseph Cohen's prediction for the index for December 31.

For the week, the COMPX dropped 4.1 percent, the SPX fell 1.9 percent and the INDU lost 1.5 percent. For the year, the COMPX is down 29 percent, the SPX is down 8.7 percent and the INDU is down 8.9 percent. If we don't get a significant rally over the next six weeks, all three major indices are likely to post an annual decline for the first time since 1990. Still, I think it's healthy to put things into perspective. In 1999, the COMPX soared 86 percent, the SPX closed higher 16 percent and the INDU added 22 percent. So, if your market perspective is longer than the time it takes the earth to make one lap around the sun, things are still looking up.

In keeping with this "the-glass-is-half-full" theme, biotech stocks gained ground on Friday after a month-long slide that shaved nearly 30 percent off the Amex Biotech Index (BTK). I stated a few weeks ago that I thought that a sell-off in the sector was imminent and that it would be a good thing because the biotechs were the only major sector not to sell-off. After this recent routing, I think there may be some legitimate buying opportunities in the sector. MedImmune (MEDI), Millennium Pharmaceutical (MLNM) and Celera Genomics (CRA) might be worth a look at current prices.

In other sector news, retailers made some noise on Friday, which should come as no surprise considering the day after Thanksgiving is one of the busiest days of the holiday shopping season. E-tailers finally made news for the right reasons, as they rallied with many of the tech issues. Amazon.com (AMZN) gained $3.75 to $28.94 despite a 20-minute outage due to heavy volume, eBay (EBAY) rose $4.06 to $36.94 and eToys (ETYS) soared $0.59 to $1.81. However, anyone who bought eToys' stock this time last will likely witness the second-coming (or first depending on your religious affiliation) before witnessing a return of (forget about return on) investment. eToys traded as high as $70.50 on November 29, 1999.

As for the brick-and-mortar retailers, they made news for the wrong reasons. The nation's largest chain store operators closed lower Friday amid slowing economy concerns. Wal-Mart (WMT) shed $0.69 to $45.19, Target (TGT) lost $0.69 to $28.44 and Sears (S) eased $0.02 to $29.88.

On the economic front, there were no data releases worth mentioning. However, the pace in economic releases will pick up this week. On Wednesday, we get Gross Domestic Product (GDP) and the GDP price deflator. GDP is predicted to show a 2.3 percent increase in its second estimate of the third quarter, off from its prior estimate of 2.7 percent. The GDP price deflator - a broad measure of inflation - is expected to remain unchanged with a 2 percent increase in its second estimate for the third quarter.

Then on Thursday, we get the week's major economic data set with the National Association of Purchasing Managers Index (NAPM). The NAPM index is likely to show little change, at 48.7 in November, from 48.3 the previous month.

As for earnings news, keep an eye on Brocade (BRCD), ADC Telecommunications (ADCT) and Wind River Systems (WIND). Of this trio, Brocade could have the biggest impact on market trading because it is one of the leaders in network storage. Look for Brocade to report on Wednesday. The consensus estimate is for $0.20 with a whisper number of $0.22. Should Brocade miss estimates or warn of weakness over the next few quarters, look for storage stocks to continue their recent slide.

So where to from here? I think the worst is finally over. (Yes, I realize I've been chanting this mantra for the past month.) Most market participants are expecting George W. to eventually get the White House despite the likelihood of having to endure a protected legal battle. In my opinion, the election is now a non-issue, which means the market will likely focus more on market technicals over the coming month. This should be good for the market because technically the market is looking poised for a change.

To that end, I think the worst is finally over on the COMPX; both the Stochastic and Relative Strength Index (RSI) are showing the index to be grossly oversold. What's more, the consensus among many technicians is that 2,700 is the absolute bottom, which means on a risk/reward basis the market should be favoring a rally in the New Economy issues.

As for the INDU, I'm not sure if the risk/reward trade-off is as favorable as the COMPX's, at least over the near term. I think the INDU could continue to trade range-bound between 10,350 and 10,500. However, I could be wrong if it can break through 10,500 early this week. If that happens, I see the INDU making a beeline towards 10,600, which is where it closed the previous week's trading.

Another argument I've put forward lately for a market rally is investor pessimism, which is relatively high. I thoroughly believe the market needs a wall of worry to climb in order to rally significantly. Sentiment peaks and lows tend to signal market turning points. The fact is short interest has been growing enormously over the past three months, very few companies have announced stock splits lately (there were none last week) and the IPO market has all but evaporated.

What's more, earnings growth is slowing drastically. Despite a solid 18 percent earnings growth rate in the third quarter, most analysts are now predicting earnings at S&P 500 companies will rise about 11.4 percent in the fourth quarter -- a miserly rate when compared to the 21.6 percent average posted in the past five quarters.

With so much pessimism permeating the air, I wouldn't be surprised if the market actually started its turnaround on Friday. The CBOE put/call ratio closed the week out at 0.59 after averaging roughly 0.80 for the past two weeks (the normal is 0.50).

Looking further down the road, holiday shopping will be the wild card for the remainder of the year. If consumers decide to cut loose like they did last year, it's possible (though improbable) we could salvage this year. But even if they don't, I think they will spend sufficiently enough to keep us on course for a favorable winter.